SWIFT | International Payments – How Does It Work? Example

In this article, we’ll take a look at SWIFT and how exactly this system makes international payments easier. To successfully carry out a cross-border payment, you logically need two things:

• To get the payment instruction from the payer’s bank to the recipient’s bank (handled by SWIFT)
• To settle the transaction between the payer’s and recipient’s accounts (handled directly by banks or through clearing centers)

Processing an international payment – meaning sending the instruction and settling the transaction between banks – is quite a logistical challenge. That’s also why international transactions come with higher fees. But why? ¹

What is SWIFT

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a company owned by its members – banks or corporations (like brokerage firms, securities traders, etc.). All resources (equity and any profits) are reinvested back into development and innovation. It’s responsible for facilitating international payments. This doesn’t mean money flows through SWIFT, but the system works by sending messages over a secure platform, which is key to completing a payment.

SWIFT is a messaging system that allows sending payment instructions via messages; it is not a clearing system.

BIC – Bank Identifier Code

Each member gets an identifier in the messaging system called a BIC (Bank Identifier Code). The code has 11 characters:

• 4 characters: institution code (e.g., FIO Bank FIOZ)
• Next 2 characters: country code (CZ for the Czech Republic)
• Next 2 characters: location or city code (PP – Prague)
• Last 3 characters are optional and usually used to distinguish branches

SWIFT currently has around 11,000 members in over 200 countries. Members pay a one-time joining fee, annual membership fees, and a fee for each SWIFT message, often passed on to the end customer (you). ²

Benefits of Joining SWIFT

The main advantage of being part of this system is that all payment instructions you as a customer make are fully processed automatically:

• You enter and authorize an international payment in your internet banking.
• Your bank automatically (via API) sends a SWIFT message to the recipient bank (if it’s a SWIFT member).
• The transaction gets settled between accounts (banks).

No one has to call, email, or enter anything manually. Everything happens automatically, which is very cost-efficient and the main reason for membership. Some non-standard transactions may be subject to additional checks (anti-money laundering, sanctions lists, blacklists, etc.), which are done both by the bank and SWIFT.

SWIFT also provides other services:

• Integration with other apps to help automate payment flows (exchanges, forex)
• Transaction reporting
• Services related to anti-money laundering – helping detect suspicious transactions, verifying transactions and parties involved

Besides SWIFT, there are other, smaller payment systems, but they are usually local in nature (their members form a specific interest or geographic group).

Sending international payment instructions via SWIFT is the dominant and most cost-efficient way to handle high-volume international transactions. ³

Settling International Payments (Nostro/Loro Accounts)

SWIFT ensures the payment instruction gets from the payer’s bank to the recipient’s bank. Once the instruction reaches the recipient bank, the payment is settled. To make payment flows as efficient as possible, large banks often have accounts with each other called Nostro and Loro accounts:

• Nostro account – an account that my bank has at another bank
• Loro account – an account that another bank has at my bank

The advantage is obvious: instead of transferring money for every transaction, the settlement happens between Nostro/Loro accounts and the payer/recipient accounts, all within one bank. If the banks don’t have these accounts, the transaction is settled another way (see below).

How SWIFT Works – Example

Let’s say I’m sending $5,000 from my account at Česká spořitelna to Bank of America, and both banks have Nostro and Loro accounts (in reality I don’t know if they do):

1. I enter the payment in my internet banking.
2. ČS, as a SWIFT member, sends a message to Bank of America.
3. ČS deducts $5,000 from my account.
4. ČS credits $5,000 to Bank of America’s Loro account at ČS.
5. Bank of America credits $5,000 to the recipient’s account.
6. Bank of America debits $5,000 from ČS’s Nostro account at Bank of America.

In practice, only banks with high transaction volumes have Nostro/Loro accounts directly with each other. Not all banks can have accounts with everyone. Here, a correspondent bank steps in, acting as a middleman. This is usually a large institution that has Nostro/Loro accounts with big banks and agreements with smaller banks to help settle transactions, charging a fee for the service.

So if Česká spořitelna (Czech republic bank) doesn’t have Nostro/Loro accounts with Bank of America, settlement could go through Deutsche Bank (acting as a correspondent bank):

• ČS deducts $5,000 from my account
• ČS credits $5,000 to its Nostro account at Deutsche Bank
• Deutsche Bank debits $5,000 from ČS’s Loro account at Deutsche Bank
• Bank of America debits $5,000 from Deutsche Bank’s Loro account
• Bank of America credits $5,000 to the final recipient
• Note: This example omits the correspondent bank fee for simplicity

SWIFT automatically identifies which members have direct accounts and routes the instructions accordingly:

• If banks have Nostro/Loro accounts, the payment goes directly.
• If not, the SWIFT message includes a correspondent bank. ⁴

Consequences of SWIFT Sanctions

Settling transactions through SWIFT is the cheapest way to process international payments. In today’s global world, where millions of transactions are processed daily, cost and time efficiency is key. SWIFT is a clever system that enables secure automatic processing via API. If a member is kicked out, transaction costs skyrocket, and some payments may not be feasible.

International trade suffers (exporters/importers can’t settle deals). Large transactions could theoretically be done via local systems, email, or phone, but at scale, it’s impractical.

The entity itself is affected. For a bank, this can trigger deposit withdrawals, halt economic activity, loss of clients, and huge financial losses. Combined with other sanctions, it’s a lethal mix.

1. Swift.com, Homepage [on-line]. [cit. 2025-10-29]. WWW: https://www.swift.com/
2. Zlatá koruna, Zahraniční platební styk [on-line]. [cit. 2025-10-29]. WWW: http://www.zlatakoruna.info/zpravy/ucty/zahranicni-platebni-styk
3. Statrys, What is SWIFT Payment? How It Works and How Long It Takes [on-line]. [cit. 2025-10-29]. WWW: https://statrys.com/blog/swift-payment-what-it-is-and-how-it-works
4. Investopedia, SWIFT Banking System: How It Powers Global Financial Transactions [on-line]. [cit. 2025-10-29]. WWW: https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp